Goal setting has traditionally been based on past performance. This practice has tended to perpetuate the sins of the past.
—Joseph M. Juran (1904–2008), American economist
NOW WE COME TO BUSINESS COMBINATIONS—the accountant's term for mergers and acquisitions. Such transactions are normally among the largest a firm ever undertakes, and often some of the most risky. In the long history of business, there never before had been as many large acquisitions as took place in the first decade of the 2000s. This period was the latest of the six historic merger manias that the United States, and to a lesser extent the rest of the financially developed world, has undergone in the past 120 years. The first led to the trusts of the gilded nineties (1893–1904); the second the pyramiding of the roaring twenties (1919–1929); the third the conglomerates of the swinging sixties (1955–1969); the fourth the leveraged buyouts of the junk bond eighties (1974–1989); the fifth the excesses of the dot-com nineties (1993–2000); and finally the real estate naughts (2003–2007). In 2007, at the peak of the latest era, a record $4.5 trillion in cash and securities was spent worldwide on such transactions. Yet in the end the story has nearly always been the same. The initial champagne giddiness gives way to some sort of hangover once the final costs of the deals are tallied.
DO MERGERS PAY OFF?
Michael Porter of Harvard University observed in 1987 that between 50% and 60% of all acquisitions ...